India’s Skimmed Milk Powder Surplus

Source-This post on India’s Skimmed Milk Powder Surplus has been created based on the article “How surplus milk powder is dairy industry’s new problem” published in “The Indian Express” on 5 July 2024.

UPSC Syllabus-GS Paper-3- Economics of Animal-Rearing.

Context- Indian dairy farmers are grappling with challenges in disposing of unproductive cattle due to stringent anti-slaughter laws enacted by several states. Adding to the woes,a new challenge has emerged with an excess of skimmed milk powder (SMP) in the market.

What is Skimmed Milk Powder?

Description-It is a dairy product derived from cow or buffalo milk. It is produced by evaporating most of the water content from milk to remove fat and water-soluble protein.

Usage-Indian dairies produce approximately 5.5-6 lakh tonnes (lt) of SMP annually. About 4 lt is typically used during lean seasons for recombination, while 1.5-2 lt is consumed in various food and industrial products like ice cream, biscuits, and baby formula.

What are the reasons behind surplus production of Skimmed Milk Powder?

1) Milk Acquisition– Dairies encounter a surplus issue when they acquire more milk than usual. This leads to excess production of SMP and butter/ghee.

2) Supply Dynamics-In 2023-24, there was ample milk supply all year as compared to last year. Dairies in Maharashtra achieved record prices for cow butter and SMP which encouraged increased milk production through better feeding and adding new animals.

3) Surplus Accumulation: Due to continuous milk availability, dairies required only about 2.5 lakh tonnes of SMP for reconstitution from April to June, the peak lean months.As a result, dairies began the new season with an increased stock of SMP, approximately 3-3.25 lakh tonnes.

Read More- Challenges Facing Dairy Sector in India

What is the implication of this surplus production?

1) Drop in Prices-: Cow skimmed milk powder (SMP) prices have dropped to Rs 200-210 per kg. Yellow butter is priced at Rs 335-340 per kg, which equates to ghee being sold at Rs 408-415 per kg because of its higher fat content.

2) Revenue Calculation: Dairies are struggling to cover costs, with revenues from processing cow milk into SMP and fat/ghee hovering around Rs 3,224-3,333 per 100 litres, leaving little margin after deducting expenses.

What should be the way forward?

1) Export Subsidy- The Centre should give a subsidy on SMP exports, which will boost domestic prices and enable dairies to pay more to farmers

2) Buffer Stock Proposal-There is a need to create a 50,000-100,000 ton buffer stock of SMP. This initiative will stabilize SMP prices, support dairy farmers, and prevent future milk inflation.

3) Market Development- The dairy industry must focus on developing markets for SMP components like proteins (casein and whey), carbohydrate (lactose), and minerals (calcium, potassium, phosphorus). This is important due to increasing demand for milk fat in India and challenges associated with surplus SMP from cow milk production.

Question for practice

What causes the surplus production of Skimmed Milk Powder? What are the implications of this surplus? What steps should be taken moving forward?